by
Sally Herigstad December 8, 2017
Summary
It’s better to take the time to craft a thoughtful
approach to getting out from under debt obligations.
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Dear To Her Credit,
I need help making some financial decisions for my 79-year-old mom who is currently in intensive care.
I need help making some financial decisions for my 79-year-old mom who is currently in intensive care.
She has been in the
hospital for three weeks following heart surgery. Before she was hospitalized,
she already had more bills than she could pay with her Social Security benefits
and part-time wages. She’s been using her credit cards to stretch her budget
for living expenses, and she now owes about $70,000 on them.
We’ve been told that
she will be in the hospital for at least several more weeks. The bill must be
in the hundreds of thousands by now.
My mom and dad plan
to sell their home to downsize and try to cut costs, but even if they do that
they may not get ahead. They have about $100,000 equity if the house sells at
full market value. Mom’s cards have ridiculously high interest rates with
minimum payments of up to $450 on just one. This along with medical expenses is
beyond comprehension. Mom only has Medicare Part A for insurance coverage.
My dad is beside
himself with worrying about my mom, and trying to figure out how to find a new
place to live and list the house, especially with the holidays coming.
Do you have any
advice on how I can help my mom tackle her credit card debt, especially while
she is hospitalized? It was hard for her to juggle it all before she got sick –
I just can’t imagine how she will manage when she gets home. I appreciate any
thoughts you may have. – Trish
Dear Trish,
This is not the time for major changes in your parents’ lives. Putting a house on the market, selling it, and finding another place to live is stressful enough. If you try to do that while one of your parents is in the hospital, it’s just too much. If your mom in ICU knows what is going on, the stress won’t help her get well. Your dad, in the midst of perhaps the most stressful time of his life, could jeopardize his own health by increasing that anxiety.
This is not the time for major changes in your parents’ lives. Putting a house on the market, selling it, and finding another place to live is stressful enough. If you try to do that while one of your parents is in the hospital, it’s just too much. If your mom in ICU knows what is going on, the stress won’t help her get well. Your dad, in the midst of perhaps the most stressful time of his life, could jeopardize his own health by increasing that anxiety.
I know you want to do
the right thing and help your parents resolve their financial difficulties.
However, I don’t believe selling the house right now, especially in a hurry, is
the answer.
Besides the pressure
on your parents, here are some reasons I wouldn’t sell the house now:
·
The house probably isn’t ready to sell.
All houses tend to have a list of deferred maintenance items as time goes by. That list of needed updates and repairs will drag down the price of the house, and then when the house is inspected for the sale, your parents may be forced to fix them anyway. When selling a home, it’s better to get everything in shipshape first, in most cases. In addition, I’ve seen a rising trend of staging homes, or something close to it, when the house goes on the market. People may expect to be “wowed” when they walk into a house. That will be a practically impossible look to keep up while someone is in the hospital.
All houses tend to have a list of deferred maintenance items as time goes by. That list of needed updates and repairs will drag down the price of the house, and then when the house is inspected for the sale, your parents may be forced to fix them anyway. When selling a home, it’s better to get everything in shipshape first, in most cases. In addition, I’ve seen a rising trend of staging homes, or something close to it, when the house goes on the market. People may expect to be “wowed” when they walk into a house. That will be a practically impossible look to keep up while someone is in the hospital.
·
A home can be a legal safe haven.
In a worst-case scenario, if your mom files for bankruptcy, state law provides some level of protection for their residence.
In a worst-case scenario, if your mom files for bankruptcy, state law provides some level of protection for their residence.
·
Downsizing doesn’t always save as much as people expect.
By the time real estate commissions, closing fees and sales tax, if applicable, are paid, sellers can lose 10 percent or more off the top of the home sale. Then factor in fees, closing costs and moving expenses to get into a new residence. Downsizing only makes sense when people move to a substantially more economical living situation.
By the time real estate commissions, closing fees and sales tax, if applicable, are paid, sellers can lose 10 percent or more off the top of the home sale. Then factor in fees, closing costs and moving expenses to get into a new residence. Downsizing only makes sense when people move to a substantially more economical living situation.
·
Your parents can always sell the house later.
Major financial and life decisions should seldom be rushed.
Major financial and life decisions should seldom be rushed.
The first thing your
mom, or someone with power of attorney for her, should do is call the credit
card companies and explain the situation. She should be able to get temporary hardship relief
while she is in the hospital.
As far as medical
bills go, Medicare Part A covers 60 days of hospitalization. After that, she has a daily
co-pay. Your mom still has over a month to go before she exceeds the first 60
days, so her bill may not be as bad as you think.
For longer-term
solutions to your parents’ financial problems, do you know if they have looked
into a reverse mortgage?
I don’t recommend reverse mortgages for every situation, mostly because of the
fees, but in some cases, they can be a good cash-flow solution.
When your parents are
past this health crisis and ready to tackle their debt situation, I recommend
they get help sorting it all out. A counselor from a nonprofit agency
affiliated with the National Foundation for
Credit Counseling or the Financial Counseling Association of America can help them look
at their options, including debt negotiation and bankruptcy, and find the best
way to resolve their debts so they can enjoy their retirement years as they
should.
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